Foreign Direct Investment Regulation, Business Taxes, and Corruption: Cross-Country Study of Foreign Bank Presence

Abstract

In this study, I investigate the impact of legal determinants on the presence of foreign banks. Using a panel dataset of 44 countries for the 2005–2012 period, I find that host countries attract more foreign banks when regulatory restrictions on foreign direct investment are low, when the compliance cost for paying taxes is low, and when host-country governments are less corrupt. I apply a robustness check to confirm the results. Overall, the evidence highlights the importance of government efforts to create a more favorable foreign direct investment environment by reducing restrictions and, along with those, costs associated with foreign capital investments.